Don’t Fall for These 10 Personal Loan Myths
If you need a personal loan to plug gaps in your finances, don’t be deterred by the often-erroneous personal loan myths that are circulating online. You may have heard that personal loan interest rates are unreasonably high, a credit card is a better financial tool with a simpler application process or that lower credit scores could cause you a problem – but is any of this really true?
Let’s take a look at the top personal loan myths in closer detail. The information below will help to boost your personal loan knowledge and help you make better financial decisions in the future.
Myth 1: It’s bad for your financial health
If you want to get a personal loan, it’s true that some personal bank loans can be more expensive than taking out a car loan, auto loan, credit card or collateral-based loan – and can add to your overall debt.
That said, most personal finance options and personal loans offered by moneylenders are actually better for your financial health in the long run than other comparable unsecured loans. This is due to the debt consolidation options available to you with most personal loans, which can actually help you to better manage your overall debts.
Most personal loans will have a lower interest rate than credit card rates. Debt consolidation enables you to use a personal loan as a debt management tool, by using your lower interest loan to pay out higher interest debts, such as credit cards. What’s more, a personal loan can help you to not only better manage your existing debts; it can boost your credit score too, ultimately improving your overall financial health.
Myth 2: You can’t get a loan without a fixed salary
One of the most common myths on the market is that you can’t get a personal loan unless you have a full-time job to fuel your repayment capacity. In actuality, almost every bank and moneylender in Singapore has been trying to branch out in recent years to support Singapore’s increasingly expanding self-employed workforce. This means that even if you are self-employed, applying for a personal loan is easy if you know where to look.
Most money lenders actively encourage self-employed people to fill out a loan application for various personal finance options, whether that be a home loan, car loan, auto loan or personal loans. If you are applying through a bank, however, you might need a minimum annual income of $30,000 and the experience might not be so straightforward.
Myth 3: You need collateral to be approved for a personal loan
When you apply for a home loan or other kinds of finance in Singapore, loan eligibility restrictions might require you to have some kind of collateral. Despite what you may have heard, however, most personal loans actually operate as an unsecured loan, meaning no specific type of collateral will be required for loan eligibility.
With most money lenders and banks, both instalment-based and variable repayments loans will be classed as an unsecured loan. For the most part, credit card loans, credit lines, education loans and renovation loans will also be available as unsecured personal loans too.
Myth 4: You can’t get a loan if you have a bad credit
It goes without saying that, under rights reserved by individual money lenders themselves, loan eligibility will be in part determined by your credit score. However, contrary to popular belief, you can still get a personal loan if you have a low credit score – you just might have to consider applying for a personal loan with a lower loan amount and a higher interest rate to get approved.
While those with a higher credit score will often get the best deals, there are plenty of money lenders out there that have looser loan eligibility requirements than banks. This means that there are always choices available – even if your credit score leaves a lot to be desired. Taking out a personal loan can also be a great way to revitalize a low credit score and improve your future credit history by keeping up with repayments, too.
Myth 5: Applying for personal loans is a time-consuming process
It’s a common misconception that any loan finance process will involve lots of form-filling, stringent loan eligibility checks and getting to grips with some kind of complex privacy policy or loan terms.
In reality, however, while this may be true with some banks, it will often take less than one hour to be approved for a personal loan with a licensed money lender – something to keep in mind when considering where to apply!
Myth 6: Personal loan interest rates are very high
This is probably the biggest personal loan myth out there right now. Under regulations set out by the Lenders Registrar, licensed money lenders in Singapore cannot charge a personal loan interest rate higher than 4% month-on-month – meaning that higher interest rates are a thing of the past.
If you’re comparing against credit cards, keep in mind that your average credit card will typically charge worse interest rates than a personal loan, too. It always pays to compare the best rates loan lenders offer using a site like Moneylender Review.
Myth 7: You’ll just fall into a debt spiral
Another rumor doing the rounds at the moment is that personal loans just plunge borrowers into a so-called “debt spiral”, where banks and money lenders are chasing you for unpaid finance and debts you just can’t seem to keep on top of.
In reality, today’s lenders and financial institutions offer so many great debt consolidation options to borrowers with existing debts that submitting a personal loan application could be your first step towards actually paying off your debts more quickly and rediscovering your financial independence.
By following the bank or money lender’s rules and regularly repaying your personal loans on time, you can actually improve your credit profile in the longer-term too, reduce your debt to income ratio and loan personal money strategically to help improve your financial situation.
Myth 8: Moneylenders charge the same interest rate as banks
The bank versus money lender debate is almost as old as finance itself, but if you’ve heard somewhere that banks always offer lower interest rates on personal loans, or that interest rates between banks and money lenders are always the same, this isn’t necessarily true.
Licensed money lenders regulated by the Ministry of Law cannot charge more interest than 4% per month, whereas banks like Standard Chartered, DBS of OCBC could potentially charge 5% or more depending on what deals are on offer at any given time. It’s always wise to compare loans using Moneylender Review to get the best personal loans and interest rate options available.
Myth 9: Loan providers won’t ask you for the purpose of the loan
Where home loans, auto loans or renovation loans are typically granted only if you can prove that you will be using the funds for specific purposes, personal loans are a little more lenient. A personal loan can be used for virtually any purpose – but that doesn’t mean that your bank or lender won’t ask you about your intentions.
Here in Singapore, it is strictly prohibited to use personal loans for purposes such as money laundering and terrorism. You should always check your desired lenders’ loan eligibility requirements and privacy policy to ensure the loan they are offering is suitable for your needs. This is important before applying for a personal loan of any kind.
Myth 10: Personal loans are the most expensive loans
Despite this popular rumour, personal loans are actually often cheaper than credit cards in the long run – and the same is true when compared to other types of loans, too. This includes car loans, auto loans, a home loan and more.
If you’re unsure whether to borrow from a bank or lender, the comparison table below shows how money lenders’ personal loans and personal loan interest rates currently compare to those offered by the top banks in Singapore.
Conclusion
With no-end of myths and rumours circulating about personal loans, it’s no wonder that many people in Singapore have misconceptions about personal loan interest rates, affordability, the typical loan application process and more.
Here at Moneylender Review, we want to set the record straight and help people make better financial decisions by having the right information at their fingertips. We also offer a quick and easy way for borrowers to compare the many best deals currently on the market, in the form of our loan comparison service.
Whether you’re self-employed, a company employee or just a regular Singaporean citizen looking for personal finance, we want to help you find the perfect personal loans to suit you.
